Pre-emptive business transformations show prevention better than treatment

18 December 2018 Authored by

An extensive business transformation can be one of the most daunting tasks to face an executive in modern business, causing many to put off until tomorrow what they could achieve today. However, a new analysis has unsurprisingly found it is better to jump before you are pushed, as those who transform early do so more quickly, and with less restructuring costs.

While business transformations can seem like long and arduous processes, the fact remains that in a crowded market, the early adoption of new technologies could offer priceless opportunities for companies to pull away from the competition. Illustrating this, a recent survey from the McKinsey Global Institute found that leaders in AI adoption could expect an overall output gain of 135% compared to -44% among those who held back on their transformation efforts.

Now, new analysis from The Boston Consulting Group has shown that getting a transformation programme underway early, even pre-empting a need for transformation, can improve outcomes quickly. The research, based on more than 600 companies whose market capitalisation breached at least $5 billion between 2010 and 2014, found that in almost all industries, quicker was better.

In most industries pre-emptive transformations creates more value

The only industry not to enjoy a positive boost in value creation from pre-emptive transformation was the financial services sector, in which rushing to innovate without a business need could see value fall by 3.3%. At the other end of the spectrum, however, operators in the materials segment could benefit from a 9.5% improvement in value, if they were to pre-emptively transform.

Largely, then, BCG’s research suggests that the earlier a company transforms, the better its future performance will be. If a company takes a reactive standpoint to change and transforms later, it will likely see a stagnation in performance at best, while pre-emptive transformers could see an improvement in performance of as much as 6%.

The earlier a company transforms the better

More than meets the eye

The results serve as a caution for those business leaders who believe a change completed at any moment will yield the same results, only later. According to BCG’s paper, this is because there are a number of secondary benefits to pre-emptive transformation.

The time required to transform in a pre-emptive move is found to be two months shorter – 12 instead of 14 – which in turn means the average restructuring cost also tends to be lower. In a pre-emptive change, just 1.5% of revenues go towards the transformation, compared to over 1.8% in reactive cases, while there is also 5% less likelihood of leadership change. 21% of reactive firms face leadership changes during a transformation, and unplanned leadership changes like this often have negative impacts on business outcomes as well.

Pre-emptive transformation takes less time, costs less and increases stability

In spite of these figures, however, BCG found that pre-emptive transformations remain relatively uncommon. In any given year, the researchers estimated that only 15% of outperforming companies embark on transformations, while a slightly higher 20% of underperformers and 25% of severe underperformers do so.

To an extent, this could be said to show that success breeds complacency, but it should also serve to put a fire under all three groups. For those struggling, the opportunity is clear; they can make ground on successful firms if they transform now. At the same time, successful firms should be wary of previously troubled competitors, who could suddenly be breathing down their necks if they transform sooner rather than later.